Multiple collateral security and a high degree of legal certainty are strong arguments in favor of Swiss Pfandbriefe. In a low interest rate environment, Swiss Pfandbriefe also offer higher potential returns than Swiss Confederation bonds, and UBS ETFs make investing really easy and cost-effective.
What are Swiss Pfandbriefe?
Swiss Pfandbriefe are fixed income securities similar to bonds that offer investors special mortgage-backed and legally secured collateral. The exact design of Swiss Pfandbriefe is regulated by the Swiss Mortgage Bond Act. With a market capitalization of nearly 80 billion Swiss francs, Pfandbriefe represent one of the most popular asset classes in the Swiss bond market.
Characteristics of Swiss Pfandbriefe
- are standardized, are denominated exclusively in Swiss francs and have a maturity of at least three years at issue.
- may be issued by only two issuers – the Pfandbriefbank schweizerischer Hypothekarinstitute and the Pfandbriefzentrale der schweizerischen Kantonalbanken
- embody prior-ranking claims on the issuing Pfandbrief institution and its member banks.
- offer additional security through access to a separately held cover pool of prime Swiss mortgages, which, under the Mortgage Bond Act, must have a value of at least 108% of the issuance volume.
- provide additional security as the loans are backed by a charge over the underlying property.
You can expect a high level of security through quadruple collateral:
- Prior-ranking claims against the Pfandbrief institutions (Pfandbriefbank and Pfandbriefzentrale)
- Prior-ranking claims against member banks of the Pfandbrief institutions
- A separately held cover pool comprising prime mortgages, which investors can access in the event of issuer default Mortgage lines with which the mortgages in the cover pool are collateralized
The UBS ETF (CH) SBI® Domestic Pfandbrief 1-5 and UBS ETF (CH) SBI® Domestic Pfandbrief 5-10 offer investors the first-ever opportunity to use ETFs to invest in Swiss Pfandbriefe, with maturities of 1-5 years and 5-10 years, respectively.
Your benefits of investing in Swiss Pfandbriefe at a glance
- The easy and cost-effective way to invest in Swiss mortgage bonds.
- Physical replication: The ETFs invest directly in all Pfandbriefe included in the index.
- No securities lending: The ETFs do not engage in securities lending
- Legal certainty: They invest exclusively in Pfandbriefe as regulated by the Swiss Mortgage Bond Act
- No currency risk: No currency risk for Swiss investors as investments are denominated in Swiss francs
- Small denominations of ETFs (approx. CHF 30) compared to Swiss Pfandbriefe (approx. CHF 5,000), with lower entry threshold as a result (below 1% in comparison with direct investment in Pfandbriefe)
Yield differential between Swiss Pfandbriefe and Confederation bonds
The eurozone debt crisis and resulting uncertainty have led many investors to flee the euro to so-called "safe havens". Owing to the resulting high demand, the price of Swiss Confederation bonds has steadily risen in recent years, and so they now offer only low yields.
By contrast, Swiss Pfandbriefe generated positive returns even in a low interest rate environment. This makes them particularly attractive for investors with high expectations when it comes to the security of their investments.
A comparison reveals that Pfandbriefe significantly outperform Confederation bonds in terms of yield – particularly for shorter maturities.
UBS – first to offer ETFs on Swiss Pfandbriefe
UBS is the first bank in the Swiss market that enables investors to benefit from the return potential of Swiss Pfandbriefe – low-cost, liquid investments using ETFs on the SBI ® Domestic Pfandbrief index. The small denomination makes it possible to start investments for as little as around CHF 30. In contrast to a direct investment in Pfandbriefe (from upwards of roughly CHF 5,000), the entry threshold is less than 1% of direct investments.
Underlying: the SBI® Domestic Pfandbrief index
The Swiss Bond Index® Domestic Pfandbrief replicates the price performance of Swiss Pfandbriefe. Based on the SBI composite rating, the Pfandbriefe included in the index carry the highest credit rating of AAA. The Index is a total return index, which means that coupons paid are reinvested up to the regular ETF distribution dates, adding value to the performance of the index. New issues are automatically included during the monthly reweighting. Pfandbriefe that no longer meet the maturity requirements of the index are removed.